Seaboard Air Line Railroad v. Daniel

Background

A Virginia railroad company bought and was given federal approval to run a single system that included 736 miles of track in South Carolina. South Carolina law bars corporations created in other states from owning or operating rail lines there and imposes daily fines for violations. The railroad asked the state court to stop the attorney general from enforcing those penalties because the federal railroad regulator had approved the purchase and operation without requiring compliance with the state incorporation rules. The South Carolina Supreme Court refused and dismissed the railroad’s complaint.

Reasoning

The main question was whether the federal regulator could authorize the railroad to operate in South Carolina despite the State’s incorporation ban. The Court found the regulator intended to allow that result and pointed to a federal law grant of broad power to approve railroad consolidations and to free approved buyers from state restraints when necessary. Because Congress had given the agency authority to order such transactions and to impose conditions consistent with the public interest, the state law could not block the federally approved operation. The Supreme Court reversed the state court’s judgment.

Real world impact

The decision lets a federal agency prevent state laws from stopping an interstate railroad that the agency approves from operating across state lines. Railroads with multistate systems are more likely to rely on federal approval instead of obtaining separate state charters. South Carolina officials were ordered to stop enforcing penalties against the railroad and the case was sent back for further proceedings consistent with the ruling.